What is Hotel Revenue Management - Everything you Need to Know, Tips & Strategies (2023)

Revenue management can be defined as the strategic distribution and pricing tactics used tosell a property’s perishable inventory to the right guests at the right time, to boost overall revenue growth. Basic revenue management strategies comprise of: market understanding and competitor awareness, segmentation and price optimization, pricing strategy, forecasting and yield management.

Table of content:

  • Definition of Revenue Management for Hotels
  • History of Revenue Management in Hospitality
  • Why is Revenue Management Important in Hotels?
  • Revenue Management versus Yield Management
  • Revenue Management Strategies, Tips, and Examples
    • 1. Understanding Your Market
    • 2. Segmentation and Price Optimization
    • 3. Knowing Your Competitors
    • 4. Choosing the Right Pricing Strategy
    • 5. Forecasting
    • 6. Incentives for Direct Bookings
  • Outsourcing Revenue Management
  • Revenue Management as a Competitive Advantage

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For a long time, Revenue Management was only considered to be a supplemental offering, or an additional business process, in the hospitality industry. However, times have changed and hoteliers have realized the importance of good revenue management strategies.

(Video) Hotel Revenue Management with Scott Dahl

Nowadays revenue management is one of the core areas that impact sales and growth.

Pricing, strategy, operational management, and almost everything else takes into account revenue management to gain a competitive advantage, offer a better guest experience, and drive more revenue.

Definition of Revenue Management for Hotels

Revenue management can be defined as the strategic pricing and distribution of a property's rooms, facilities, and amenities to the right audience at the right time.

In both short- and long-run, revenue management helps in boosting sales and revenue.

Revenue management measures what different customers from multiple segments are willing to pay. This can only be done bymeasuring and monitoring the supply and demand of the hotel rooms, eventually breaking it down into various factors.

What is Hotel Revenue Management - Everything you Need to Know, Tips & Strategies (1)

History of Revenue Management in Hospitality

Revenue management was born in the aviation industry, and the concepts of inventory management and price optimization further spread to different segments of the hospitality business. Revenue management is also extensively used in other industries. The most vital change came from a tactical inventory management approach to evolve into a more strategic marketing approach.

In the past, hotels didn’t take into consideration the importance ofacquiring new market segments to fill slow demand periods or try to apprehend if the prices that were being offered were ideal.

(Video) Hotel Revenue Management – Simplified!

Based on the airline industry’s yield management, the hotel industry started to apply revenue management strategies in the late 1980s, as the products shared similar characteristics, such asperishability, fixed capacity and the need for segmentation based on customers’ levels of price sensitivity.

Why is Revenue Management Important in Hotels?

Revenue Management is critical for hotels as it’s a service, not just a product on the shelf. Demand varies by day of the week and by season, and there are many services that hoteliers canattach or package to a simple room night to capture the interest of many different types of customers. These may range from business travellers and solo tourists to couples and families.

Finding the best tailor-made solution for the specific property requires adedicated Revenue Manager who will analyze the competitor set and the market to find the best opportunities for the hotel.

If the pricing is not right or well-thought of backed by data, a hotel could lose a lot of potential revenue.

Revenue Management versus Yield Management

While revenue management includes predicting consumer behaviour by various market segments,forecasting demand, and optimizing prices for several different types of products, yield management refers specificallytomaximizing revenue through inventory control.

There are three essential conditions for yield management to be applicable:

  • There should be a fixed number of products available
  • Perishable product (there is a time limit to selling the resources, after which they cease to be of value) should be available
  • Different customers should be willing to pay a different price for the same product
  • There should be high fixed cost and low variable cost – every additional revenue will contribute to overall profit
What is Hotel Revenue Management - Everything you Need to Know, Tips & Strategies (2)

Revenue Management Strategies, Tips, and Examples

There are six basic revenue management strategies that need to be implemented in every hotel. These are the pillars of success.

(Video) Revenue Management Strategies for Your Hospitality Property | Ep. #153

1. Understanding Your Market

It's important to make sure you know what the peaks and highs are for the season. You also need to consider which days of the week remain busy, and which ones are slower. Knowing the market trend can put youahead of the competitor set and help you maximize revenue.

2. Segmentation and Price Optimization

It’s critical to understand the market and know what type of customers are staying at the hotel. It's also important to figure out who is willing to pay how much. Here's our guide on this:Identify, Segment and Target your Hotel Customers

3. Knowing Your Competitors

The competitors in your area are your main rivals. They have the best opportunities in taking business from you. Hence, you need to familiarize yourself with their products, pricing and any advantages that they might be using. It's good to use this information as a benchmark to know what you need to do better.

To learn more about creating your own hotel competitor set, check out:How to create your hotel competitive set analysis?

4. Choosing the Right Pricing Strategy

Pricing is the key, and understanding your market and segments helps you choose the right price points to maximize revenue

Here's a full guide:How to build a pricing strategy for your independent hotel

5. Forecasting

In order to understand future demand and set the correct pricing strategy, you need to have a forecast in place to see what you can anticipate in specific segments. This helps you prepare for the future. Looking ahead is key in Revenue Management! Here'severything you need to know about forecasting.

(Video) How to enhance your hotel's revenue management and pricing strategy for maximum profits?

6. Incentives for Direct Bookings

Direct booking are important in building guest loyalty. You need to make sure that the customers know they can receive the best price at the hotel website, instead of using third-party channels where you end up paying commissions.

To discover the most widely used incentives you can implement, check out:10 ways to get more direct bookings.

What is Hotel Revenue Management - Everything you Need to Know, Tips & Strategies (3)

Outsourcing Revenue Management

Having an in-house Revenue Manager is good, but the distractions don't help. In a hotel, there is always something happening, and someone needs to give a hand.

Having a Revenue Manager on site as part of the team can take away time from core revenue management. The person may just be involved with a lot, and you might end up losing opportunities to impact revenue.

Hence,outsourcing revenue management is a good idea, as it frees up a team member and allows them to focus on the operational part of the business. This creates outstanding guest experience, while the 'offsite' Revenue Manager can work on maximizing the revenue.

Revenue Management as a Competitive Advantage

Overall, Revenue Management is critical for maximizing a hotel’s revenue. Every market is getting saturated with more and more hotels opening up, and in order to gain competitive advantage, you need to use revenue management to its full potential.

As mentioned, Revenue Management is not just about pricing. There is much more than the rate of the rooms. It makes you consider demand, budget, forecast, and everything else to make the most of the opportunities and reservations.

(Video) Revenue Management - the science of ultimate hotel success

It’s not just the hotel room anymore, but also the added amenities and everything that is included for a certain price point. Setting the right rate is just the beginning.

Utilizing Revenue Management and its software, such asRevenue Management Systems (RMS) or to assist you, brings your property to the next level by broadening the horizon and helping you reach your goals.

HotelMinder is a leading consulting agency for hoteliers tomaximize business performance with hands-on advisory & project management services;a free and unbiased hospitality knowledge platform with Tech, Marketing, Revenue and Operational content;and a marketplace for professionals from all over the world to find hospitality specific software and services that best match their vision and requirements.


What is a hotel revenue management strategy? ›

Revenue management refers to the strategic distribution and pricing tactics you use to sell your property's perishable inventory to the right guests at the right time, to boost revenue growth. Other products such as your amenities and food and beverage offerings will also come into the picture.

What are 3 strategies that you would use to manage and control revenue? ›

Top revenue management strategies you can employ
  • Analyze the market. It is essential to understand your market before implementing a revenue management strategy. ...
  • Segment your customer base. ...
  • Choose the best pricing strategy. ...
  • Focus on customer retention. ...
  • Focus on mobile optimization. ...
  • Leverage available revenue management tools.

What are the strategies to increase revenue in hotel? ›

11 Simple Ways to Successfully Increase Hotel Revenue
  • Offer Early Check-In and Late Checkout.
  • Promote your food and beverage options throughout the stay.
  • Offer room upgrades pre-arrival.
  • Partner with local businesses to offer excursions and experiences.
  • Take advantage of other upsell opportunities.
Sep 14, 2021

What is an example of revenue management in a hotel? ›

To calculate your revenue per available room, multiply your occupancy by your ADR. For example, if your occupancy rate is 80% (you sold 80 of your 100 rooms) and your ADR is $100, your RevPAR would be $80.

What are the 5 steps of revenue management strategy? ›

The stages in this process are Data Collection, Segmentation, Forecasting, Optimization, Dynamic Re Evaluation.

What is the best example of revenue management? ›

The most common example of how Revenue Management is executed is in the businesses of Hotel Management and the Airline Industry. The primary source of revenue for hotels is found in their room rates. The revenue generated from the bookings is a simple multiplication of price and volume booked.

What are the 4 C's of revenue management? ›

The strategic levers of yield management can be summarized as four Cs: namely, calendar, clock, capacity, and cost.

What are 7 core principles of revenue management? ›

In revenue management, the major functional components for its application are: (1) market segmentation, (2) inventory pooling, (3) demand forecasting and supply forecasting, (4) overbooking's control, (5) revenue mix controls, (6) exception processing and (7) performance measurement.

What are the 4 stages of revenue management? ›

Similar to the concept of the 7Ps of Marketing Mix, there are 4 key elements of revenue management that hotels should adhere to. The 4Ps of revenue management are: Pricing, Positioning, Pace and Performance.

What are the 9 essential strategies for increasing revenue? ›

How to increase revenues and sales
  • Set defined goals. Make quantifiable goals for how much you want to increase your sales and revenue. ...
  • Target repeat customers. ...
  • Target former customers. ...
  • Grow your geographic reach. ...
  • Refine your pricing plan. ...
  • Add products or services. ...
  • Bundle products or services. ...
  • Upsell products and services.
Mar 10, 2023

What are the two main sources of hotel revenues? ›

When it comes to bringing in revenue, hotels typically rely on four primary sources: rooms, meetings and events, food and beverage, and ancillary services. In hospitality, typically, the performance of each pillar will determine a property's financial success.

What are three sources of hotel revenue? ›

Typically, revenue in the hospitality industry is generated through hotel room rentals, meeting space occupancy, and the sale of food or beverages.

What is the main aim of revenue management? ›

The aim of Revenue Management is to analyse data that allows you to predict demand, so that you can offer them the right product at a fair price, and therefore optimise your business results.

What is 1 benefits of revenue management for hoteliers? ›

A hotel revenue management system is used to analyse various data such as internal data, market supply, and customer demand to optimize pricing and inventory. Simply put, it helps hoteliers in calculating the ideal rates for rooms and maximising the bottom line.

How do you recognize revenue in a hotel? ›

The Hotel recognizes revenue when (or as) it satisfies a performance obligation by transferring promised goods or services to its customers. The good or service is considered transferred when the customer gains control of the good or service.

What are the first 7 standard steps for the revenue cycle? ›

The seven steps of revenue cycle include preregistration, registration, charge capture, claim submission, remittance processing, insurance follow-up and patient collections.

What are the five core factors of revenue management? ›

Dynamic Factors in Revenue Management
  • Revenue Management Pricing. The most obvious factor in revenue management is the price. ...
  • Inventory Revenue Management Systems. ...
  • Revenue Marketing Strategies and Opportunities. ...
  • Sales Channels and Revenue Pricing.

What are the 4 main requirements associated with revenue recognition? ›

In this instance, revenue is recognized when all four of the traditional revenue recognition criteria are met: (1) the price can be determined, (2) collection is probable, (3) there is persuasive evidence of an arrangement, and (4) delivery has occurred.

What is revenue management for dummies? ›

Revenue management is concerned with optimizing financial results and is especially popular in industries like hospitality, which must contend with high fixed costs and a perishable inventory. For example, hotels have a certain number of rooms and fixed costs which must be met, regardless of how many rooms are sold.

What are the three examples of revenue? ›

The three examples of revenue are:
  • Rent received.
  • Amount received from one time sale of an asset.
  • Interest received from bank accounts.

What are 5 revenue examples? ›

Types of revenue accounts
  • Sales.
  • Rent revenue.
  • Dividend revenue.
  • Interest revenue.
  • Contra revenue (sales return and sales discount)
Oct 26, 2022

What are the key elements of revenue management? ›

Key Elements for Performing Revenue Management Effectively
  • Useable data.
  • Constant demand.
  • Flexible costs.
  • Segmented customer markets.
  • Fixed capacity.
  • Perishable inventory.

What is the revenue management process? ›

Revenue management is the practice of applying data and analytics to predict demand and adjust pricing — and, in some cases, other terms of sale — to maximize revenue from the business's underlying inventory/supply.

What is hotel revenue? ›

In hotels, revenue is the income that is received during a period of time from the sale of accommodation to guests.

What are 3 things you would do to increase revenue? ›

Strategies to increase sales revenue
  • increasing your prices.
  • finding new customers.
  • selling more to existing customers.
  • offering sale promotions to boost the volume of sales.
  • developing new product or service lines.
  • selling in new markets.

What is the formula for revenue? ›

A simple way to solve for revenue is by multiplying the number of sales and the sales price or average service price (Revenue = Sales x Average Price of Service or Sales Price).

What is the key to increase revenue? ›

To increase revenue for your small business, you should focus on your customers, boost your marketing and sales efforts, review your pricing strategies and expand your market. No matter your budget, there are a number of strategies that small business owners can use to increase profits and improve the bottom lines.

What is the most profitable part of a hotel? ›

5 Profitable Hotel Amenities
  • Hotel Directories. Hotel directories are easily one of the top most valuable hotel amenities a hotel can provide for guests. ...
  • Guest Room Accessories. ...
  • Conference Room Products. ...
  • Banquet Supplies. ...
  • Pool Menus.

What is your revenue model? ›

What Is a Revenue Model? A revenue model is a blueprint that shows how a startup business will earn revenue or gross income from its standard business operations, and how it will pay for operating costs and expenses.

What makes a hotel profitable? ›

Owning a hotel can be profitable if you have the right combination of location, price point, quality of the physical asset, marketing strategy, dedicated employees, and supportive investors and management partners. However, a hotel isn't profitable by default, so you can expect a lot of hard work to generate profit.

What are the three key financial ratios in the hospitality industry? ›

In today's industry, solvency, operating and profitability ratios are the most commonly used financial analytics that hoteliers utilize to gauge current and projected business performance.

What is an example of major source of revenue? ›

Renting, leasing, or lending assets. Licensing content to third parties. Brokerage fees. Advertising fees.

How many hotels use a revenue management system? ›

Our analysis shows that 28% of hotels utilize RMS tools, but that a large part of this is made up by Expedia's free and limited RM tool Rev+. Only 10% of hotels purchase revenue management software.

What is a strategic goal for revenue? ›

What Is a Revenue Strategy? At the highest level, revenue strategy is your plan for making more money (revenue). Revenue strategy should include short-term solutions (like optimizing your sales compensation plan) as well as long-term ones (like a more strategic focus on customer retention).

What are the essential qualities of hotel revenue manager? ›

Strong analytical skills. Have a working knowledge of hotel technology, including Extranets, CRS, GDS, Channel Manager, PMS and other relevant systems. A strong understanding of current industry revenue management techniques. Commercial attitude.

What sheet shows revenue? ›

The income statement, often called the profit and loss statement, shows the revenues, costs, and expenses over a period which is typically a fiscal quarter or a fiscal year. The income statement tells investors whether a company is generating a profit or loss.

What is an example of revenue management sales strategy? ›

Price per segment is another common strategy for revenue management purposes and involves selling the same rooms at different prices to different customer segments. For example, this might mean selling rooms at a lower rate to business customers, because they are likely to use corporate facilities.

What are the trends in hospitality revenue management strategies? ›

New and emerging technology is always going to be one of the most critical revenue management trends to keep pace with. At present, some of the biggest technology trends include the use of hotel management software, the rise of specialist revenue management software, as well as other tools, like upselling software.

What are 4 common sales strategies? ›

There are essentially four selling strategies: script-based selling, needs-satisfaction selling, consultative selling, and strategic partnering.


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